Case Law Details
HDFC Bank Ltd. Vs ACIT (Bombay High Court)
Conclusion: Transaction of purchase of loan from HDFC ltd. would not cover within the meaning of Specified Domestic Transactions (SDTs) as the shareholding of HDFC Ltd. of 16.39% could not be clubbed with the shareholding of the HDFC Investments Ltd. of 6.25% to cross the threshold limit of substantial interest of 20%. Also, payment by assessee to HBL Global for rendering services would not fall under SDT as assessee was not directly beneficial owner of the shares of HBD Global. Further, transaction of payment of interest by assessee to HDB Welfare Trust would not be SDT as trust had been set up exclusively for the welfare of its employees and there was no question of assessee being entitled to 20% of the profits of such Trust. None of the three transactions would fall within the meaning of a SDT as required under section 92BA(i).
Held: In the present case, there were three transactions which Revenue had alleged, were Specified Domestic Transactions (“SDTs”). They were (1) Loans of Rs.5164 Crores purchased by assessee from the promoters (HDFC Ltd.) and loans of Rs.27.72 Crores purchased from the subsidiaries; (2) Payment of Rs.492.50 Crores by assessee to HBL Global for rendering services; and (3) payment of interest of Rs.4.41 Crores by assessee to HDB Welfare Trust. Looking to the first transaction, it was undisputed that assessee purchased the loans of HDFC Ltd. of more than Rs. 5,000 Crores. HDFC Ltd. admittedly holds 16.39% of the shareholding in the assessee. On a plain reading of section 40A(2)(b)(iv) read with explanation (a) thereof, HDFC Ltd. would not be a person who would have a substantial interest in assessee. This was simply because explanation (a) clearly stipulates that for one to have a substantial interest; it should be the beneficial owner of shares carrying not less than 20% of the voting power. However, Revenue clubbed the shareholding of HDFC Ltd. of 16.39% with the shareholding of the HDFC Investments Ltd. of 6.25% (and which was a wholly owned subsidiary of HDFC Ltd.) for crossing the threshold of 20%. It was held HDFC Ltd. could not be said to be the beneficial owner of the shares that HDFC Investments Ltd. held in the assessee because the shares that HDFC Investments Ltd. held in the assessee was its asset, and HDFC Ltd., though being a 100% shareholder of HDFC Investments Ltd., could not be termed as the owner (beneficial or otherwise) of the assets and properties of HDFC Investments Ltd. Therefore, the shareholding of HDFC Ltd. and HDFC Investments Ltd. could not be clubbed together to cross the threshold of 20% as required under explanation (a). Therefore, this transaction of purchase of loans by assessee from HDFC Ltd. would not fall within the meaning of a SDT. Looking to the second transaction, it was held assessee could never be said to be beneficial owner of the shares in HBL Global for the simple reason that it held absolutely no shares in HBD Global. It held shares in a company called ADFC Ltd., which in turn held 98.4% shares in HBL Global. This would not mean that either directly or indirectly assessee was the beneficial owner of the shares of HBD Global. Looking to the third transaction, it was held trust had been set up exclusively for the welfare of its employees and there was no question of assessee being entitled to 20% of the profits of such Trust. Thus, this transaction also clearly would not fall within section 40A(2)(b) read with explanation (b) thereof to be a SDT as understood and covered by section 92BA(i). None of the three transactions that form the subject matter of this Petition fall within the meaning of a SDT as required under section 92BA(i).
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. By this Petition, the Petitioner – bank seeks a writ of certiorari for quashing the impugned order dated 29th December, 2016 (Exh “F”) and the impugned reference dated 29th December, The impugned order dated 29th December, 2016 (Exh “F”) passed by Respondent No.1 holds that certain transactions entered into by the Petitioner are “Specified Domestic Transactions” (for short “SDTs”) as per section 92BA(i) of the Income Tax Act, 1961 (for short the “I.T. Act”) and the Arms Length Price (“ALP”) of the said transactions are required to be determined by making a reference to Respondent No.2. It is pursuant to this order that the reference dated 29th December, 2016 was made to Respondent No.2 under section 92CA(1) of the I.T. Act for determination of the ALP in the Petitioner’s case for the Assessment Year (for short “A.Y.”) 2014-15. It is the case of the Petitioner that the impugned order as well as the impugned reference are ex-facie without jurisdiction, illegal, unsustainable, contrary to the principles of natural justice and contrary to law, and therefore, ought to be quashed and set aside by us in our writ jurisdiction. This is how the present Writ Petition has been filed.
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